Politicians Prepare New Money Drops As Dollar Weakens

The gold and silver market rallied earlier this week to record slight new multi-year highs before giving back some of those gains late Wednesday and into Friday morning.

Concerns about rising COVID-19 infections weighed on industrial commodities and stocks. New York and Texas announced they would suspend further reopening plans, while a spike in cases in Arizona raised alarms among public health officials.

However, other data shows that death rates continue to decline – evidence that the novel coronavirus is far less lethal than previously thought. And the rebound in infections is coming primarily from the ongoing increase in testing and reporting.

At the same time, expectations are building for another round of stimulus from Washington. White House economic advisor Larry Kudlow confirmed this week that more stimulus checks are on the table – as are a host of other spending priorities for the Trump administration and the Democrat controlled Congress.

The U.S. Treasury Department has already committed $3 trillion in aid through the CARES Act. But well over 30 million Americans remain jobless, with many parts of the economy still largely shut down.

Meanwhile, mobs of rioters, looters, and thugs continue to rampage through cities. As crime surges and law enforcement pulls back under political pressure from left-wing activists, the economies of some of these urban communities will suffer even more. Few businesses will want to invest capital in areas under the grip of anarcho-tyranny, and more and more residents will want to flee to more orderly suburban or rural areas.

The revolutionaries who want to overturn capitalism, abolish the police, and tear down American history won’t be placated by system reforms. But politicians are still giving into the mob’s demands right and left.

The angry agitators are demanding cash payments including racial reparations. It appears that more federal funds will be headed their way. And perhaps some will also go to the millions of ordinary Americans who are just trying to make ends meet for their families.

Businessman and economic commentator and a past guest here on our podcast Steve Forbes weighed in on the likelihood of another stimulus package that could include payroll tax relief:

Steve Forbes: Well, the political season is heating up and guess what? There will be a new stimulus bill. The White House is coming up with its ideas. Congressional ideas are floating around. So, what's likely to be in it? One is if the White House pushes hard, there will be that payroll tax holiday that means somebody making $40,000 a year will get the equivalent of an annual raise of $3,000.

Now, what will the Democrats want? They want bailout money for states to help cover their COVID expenses and some other things. Republicans don't like that idea, but they will go along. There will be a lot of heavy negotiation. There'll be a lot of storming out of the rooms, but a new bill is coming and after Labor Day, you can look forward to another treasury check.

Right now, the only question that is being asked about all of these proposals is: What’s politically feasible? Well, in an election year, just about anything that is popular with constituents or powerful special interests can make its way into a stimulus package.

Nobody in Washington is asking how it will all be paid. It will simply be added to the national debt, of course. And the Federal Reserve will buy up government bonds in unlimited quantities to keep a lid on interest rates.

Few politicians have any concerns about the longer-term consequences of running up an unprecedented budget deficit enabled by an exploding central bank balance sheet. One big risk, though, is a rapid decline in the value of the Federal Reserve Note.

The buck traded in a volatile fashion versus foreign fiat currencies this spring, first spiking higher, then lower during the turmoil in financial markets. The U.S. Dollar Index has since settled back down to about where it began the year.

If and when the USDX embarks another leg lower, that should provide fuel for an upside breakout in gold to a new record high. At that point, mainstream investors will start paying attention to precious metals. Opportunistic bargain hunters will see that silver has a lot of catching up to do.

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